Why Do the Markets Keep Getting Whipsawed By Trumpian Nonsense?!

FOMO re the "post-war rally?" Really?

Why does this happen?

WSJ:

And so on…

I’m busy today so must be brief, and it’s never a good idea to spend much time trying to make sense out of daily market bips and bops. Moreover, even a hard-boiled Trumpian cynic like myself was a bit surprised by the extent to which his speech last night was basically a recitation of his Truth Social rants.

But it is extremely clear that he plays yo-yo with the markets. He enjoys tanking them on Monday so he can lift them on Tuesday. It’s a bit less clear why investors indulge him.

As the WSJ FOMO piece correctly notes, “No one on Wall Street wants to be on the wrong side of a postwar rally.” But the daily whipsaws—Trump makes war-ending sounds and equity markets spike and the oil price tanks (yesterday); those sounds turn out to be false and everything flips back (today, at least as I write!)—suggest investors are ignoring a lot of important information, which is never a healthy sign for markets.

Such information includes the fact that Iran clearly recognizes the damage they’re doing to their many adversaries by blocking transit through the Strait and they show little sign of standing down. We’ve clearly degraded their capacity, but they equally clearly are still able to damage their enemies’ assets. Though Trump’s objectives have never been clear, none appear to have been obtained. The regime remains in place and seems no less hardline than its predecessor. Add to all this the fact that Israel is in the mix, and shows no inclination to back down—the war is a lot more popular there—and the usual TACO channel is less accessible.

FTR, Tobin Marcus at Wolfe Research makes versions of these points in frequent (paywalled) notes. He called the speech content correctly yesterday, and this morning notes that it:

…broke no real new ground in terms of US objectives, strategy, or the outlook for the war. Rather, it aimed to clarify why we needed to go to war, why now, and what victory looks like. It's perfectly sensible for the President to try to level with the American people about the costs and difficult choices entailed by an ongoing war, but this would probably have been more reassuring on Day 1 than Day 31. We can't imagine that this speech changed the minds of too many voters concerned about the cost of gas.

(I hired Tobin when he was still in knee pants, and even back then he was making strong calls.)

All of this information is available to market investors, yet they keep getting their hopes up. Again, there’s some rationality in play: markets are reacting to any signs of escalation and de-escalation they can parse out. The problem is Trump does not send credible signals. Investors seem to think they can pull the signal from the noise in his musings, but that’s got to be close to impossible, because he himself doesn’t distinguish between these two modes. He thinks he’s sending all signals but he’s really sending almost all noise.

From where I sit, market actors seem to be imagining some version of a rational leader who will recognize his mistake, declare victory, and stand down. What’s more, when this expectation is dashed, they wait a day and then re-rev up the optimism the next day. What we actually have is a leader who got us into this mess on a whim and a hunch and is now stuck there. Not forever, to be clear, but for now.

He expected Maduro; he’s getting Afghanistan. He’s now reduced to observations like, from last night’s speech, the Strait of Hormuz “will open up naturally” after the war, suggesting he may just give up and leave. He said as much a few days ago, telling Europe this was their problem now and if they want the oil, they should man up and GO GET IT!

All of this is clear evidence of the fact that he and his team are in way over their heads, and they don’t know, for now and for at least the next few weeks if not months, what to do about it.

My beat, as you know, is mostly the real economy—growth, jobs, wages, inflation, etc. Not generally markets, except to the extent that they impinge on the real variables. But all this noise—this risk-on, risk-off based on Trump’s blathering—is hard to watch (so do yourself a favor and don’t watch it) and not a sign of a healthy stock market doing what they taught us in grad school: allocating society’s excess savings to its most productive uses.

I know, my profs were some great kidders back in the day!